Apple Battles E-Book Charges

The Justice Department's e-book price-fixing case against Apple has gone to trial, but the moment of truth probably won't arrive for some time. Whatever the outcome may be, neither side is likely to go down without another fight, said attorney Jonathan Kirsch. "Both sides will live to fight another day, because an appeal is likely." The e-book market is still largely uncharted territory.

Apple's trial for alleged e-book price-fixing is under way, and the tech giant has said it is not going down without a fight.

The suit, brought by the U.S. Department of Justice about a year ago, claims that Apple and five other major publishers engaged in a conspiracy to fix e-book pricing.

The alleged conspiracy began in 2009, according to the complaint, when Amazon released its Kindle and snagged about 90 percent of the market by offering low-priced e-books in order to promote sales of its e-book reader.

Amazon's strategy allegedly left the publishers and Apple, which hoped to sell plenty of e-books to its iPad users, feeling the pinch from Amazon's dominance in the growing e-book industry. That drove them to conspire to increase the prices, according to the prosecution.

Apple is maintaining that it did nothing wrong. CEO Tim Cook called the charges "bizarre" in an interview at D11 last week, saying that as a matter of principle, the company wasn't going to sign anything that implicated it for something it didn't do.

Fighting the Charges

That's a different course of action from that taken by the other publishers named in the original suit; all of them have already settled out of court. Judge Denise Cote, who is hearing the case, encouraged Apple to do the same, suggesting the evidence that Apple had "knowingly participated in and facilitated a conspiracy to raise prices of e-books" was substantial.

Most of that evidence refers to communication from Apple executives, including the late Steve Jobs and heads of the other publishing companies, which is indeed compelling, said James Hetz, attorney at Hetz, Jones & Goldberg.

"As it stands now, it appears that the crux of the government's case revolves around an email Jobs sent James Murdoch of News Corp., a parent company of HarperCollins, asking his agreement to the e-book pricing plan and Apple's Most Favored Nation clause," said Hetz. "Additionally, Jobs made mention of the arrangement with HarperCollins and the other five publishers in his autobiography."

If that evidence holds up and Apple is found guilty, the government won't seek monetary damages, but civil cases in other states could, Hetz pointed out, making it a potentially costly case for Apple.

"If Apple loses, the case will be used for a springboard by attorneys general of various U.S. states to sue Apple separately for antitrust and conspiracy-related state law causes of action," he pointed out. "This could subject Apple to extensive civil damage awards as well as legal fees."

Apple probably didn't want to start off the trial with a judge that has seen that evidence against it, said Jonathan Kirsch, author and publishing attorney in Los Angeles.

"The fact that the judge has already ratified the settlement with the book publishers -- and did so in terms that suggest how strong she thinks the prosecution's case really is -- cannot be encouraging for Apple and may explain why Apple characterizes the case as 'bizarre,'" he told MacNewsWorld.

Don't Hold Your Breath

Whatever the outcome may be, neither side is likely to go down without another fight, said Kirsch. Apple has shown its courtroom resilience in the ongoing battles with rivals like Samsung, and this legal battle won't be any different.

"In any event, both sides will live to fight another day, because an appeal is likely," he added.

That appeal could attempt to answer larger questions about the e-book market, which is still a relatively new and unregulated market, said Hetz. Even if Apple were found guilty of violating antitrust rules the first time around, a second look at the case might paint the company's actions in a more favorable light -- viewed more as the ups and downs of doing business in uncharted territory.

"I think Apple will be found to have violated the Sherman Act and Apple will appeal, knowing they are facing the state law actions," Kirsch predicted. "I think Apple will present evidence that these agreements are not conspiratory, but a legitimate and accepted way to do business, especially when entering and in effect creating a new market, i.e., e-books. The fact that Amazon adopted similar type agreements provides proof that it was an effective way to create and foster the e-book market."

Rachelle Dragani is a freelance reporter based in Brooklyn, NY. She enjoys staying on top of e-commerce deals, reporting on what new gadget is coming your way, and keeping tabs on anyone trying to hack into your info. Feel free to e-mail her at rachelle.dragani@newsroom.ectnews.com.